Inc Terra Lycos - Terra Lycos Created By Merger With Spain's Terra Networks, 2000-2001

TERRA LYCOS CREATED BY MERGER WITH SPAIN'S TERRA NETWORKS (2000-2001)

In May 2000 it was announced that Lycos would be acquired for $12.5 billion by Terra Networks. Wall Street jitters sent Lycos's stock down more than 20 percent. With support from CMGI, Lycos combined with Terra Networks to create Terra Lycos, Inc. in October 2000. Estimates of the merger value ranged between $5.3 and $6.5 billion.

Terra Networks had been established in December 1998 as Telefonica Interactiva by Spain's largest telephone company, Telefonica, S.A. Through acquisitions Telefonica Interactiva quickly became the topranked portal and Internet service provider (ISP) in Spain. Later in 1999 the company acquired ISPs and Internet portals in Brazil, Central America, Mexico, Argentina, Chile, and Peru. In November 1999 Telefonica Interactiva went public and changed its name to Terra Networks, S.A.

Bertelsmann also participated in the formation of Terra Lycos. The German media giant agreed to provide content to Terra Lycos and to purchase $1 billion worth of services and advertising over a five-year period. With operations in 54 countries, Bertelsmann was the third-largest media company in the world.

At the end of 2000 Terra Lycos was providing Internet access to more than 5 million customers worldwide. The company was the leading ISP in Spain, Chile, Peru, and Guatemala, offering both paid and free subscription services. Lycos Asia received permission from the Chinese government to operate a Web portal from Shanghai. Lycos Indonesia was launched in October 2000, and the launch of Lycos Thailand in December 2000 gave Terra Lycos an international presence in 41 countries. Terra Lycos acquired portals in France and Sweden and in 2001 launched Terra Caribe in the Dominican Republic, its 42nd country, and a portal in Russia.

Terra Lycos continued to add new content and services to its Web portal through acquisitions and partnerships. It acquired Matchmaker.com, a Texas-based online dating service, for $44 million. The company continued to strengthen its brand through a $20 million national advertising campaign and high-profile partnerships that included building Web sites for the 2000 Olympics in Sydney, Australia. In 2001 it acquired financial Web site Raging Bull from Alta-Vista.

Although Terra Lycos continued to make acquisitions in 2001 that were funded in part by a multi-billion dollar rights offering, the company was forced to make some cutbacks as the economy slowed. Jobs were cut and revenue estimates were lowered. The company discontinued free Internet service in Brazil and planned to reduce its overall workforce by 15 percent. After first quarter revenues were lower than expected, Terra Lycos projected that it would return to a positive EBITDA (earnings before interest, taxes, depreciation, and amortization) in 2002. The company's stated goal was to become the first or second leading Internet destination in each of the countries in which it operated.